Financial information for nile holdings

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Reference no: EM133113508

Problem:

Nile Holdings

Selected financial information as of Dec. 31, 2017

Last year's EBIT (2017)

$175.0 million

Expected EBIT (2018)

$189.8 million

Current portion of existing long-term debt, due 2015

$34 million

Interest due in 2015 on existing debt

$36 million

Tax rate

35%

Common stock price per share

$50.00

Common shares outstanding

20 million

Dividends per share

$2.00

Please refer to the financial information for Nile Holdings above. Nile must decide how to finance a $100 million investment. Suppose Nile expects $4.52 in EPS next year if it does not go through with the investment and associated financing. As a shareholder, to satisfy its funding needs for the investment opportunity, do you prefer the company issue $100 million in new debt at an interest rate of 7% and a payment of $20 million due on the debt next year or issue 2 million shares of equity at a target price of $50? Show supporting calculations and provide arguments and potential counter-arguments for your recommendation.

Reference no: EM133113508

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